WAYTRONX,
INC.
 
 UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 
 QUARTERLY
REPORT UNDER SECTION 13 OR 15(D)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
quarter ended June 30, 2009
 
 Commission
File Number 0-29195
 
 WAYTRONX,
INC.
 (Name of
Small Business Issuer in Its Charter)
 
 Colorado
                    (3990)
                    84-1463284(State
      or jurisdiction of
                    (Primary
      Standard Industrial
                    (I.R.S.
      Employerincorporation
      or organization)
                    Classification
      Code Number)
                    Identification
      No.)
 
 20050 SW
112th Avenue
 Tualatin,
Oregon 97062
 (503)
612-2300.
 (Address
and Telephone Number of Principal Executive Offices and Principal Place of
Business)
 
 William
J. Clough, CEO/President
 Waytronx,
Inc.
 20050 SW
112th Avenue
 Tualatin,
Oregon 97062
 (503)
612-2300.
 (Name,
Address and Telephone Number of Agent for Service)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 YES x NO  ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
 YES  ̈ NO x
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange act.
 
 Large
      accelerated filer  ̈
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈ (Do
      not check if a smaller reporting
                  company)
                Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 YES  ̈ NO x
 
 As of
August 3, 2009, there were 167,005,919 shares of the Company's common stock
outstanding, 50,543 shares of Series A Convertible Preferred Stock outstanding,
no shares of Series B and Series C Convertible Preferred Stock
outstanding.
  
  WAYTRONX,
INC.
 
 INDEX
 
 PagePart
      IItem
      1
                                Financial
      Statements
                                3Condensed
      Consolidated Balance Sheets (unaudited)
                                3Condensed
      Consolidated Statements of Operations (unaudited)
                                4Condensed
      Consolidated Statements of Cash Flows (unaudited)
                                5Notes
      to the Condensed Financial Statements (unaudited)
                                7Accounting
      Policies
                                8Item
      2
                                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                19Overview
                                19Intellectual
      Property
                                19Liquidity
      and Capital Resources
                                20Results
      of Operations
                                21Item
      3.
                                Controls
      and Procedures
                                24Part
      IIItem
      1
                                Legal
      Proceedings.
                                24Item
      1A
                                Risk
      Factors
                                24Item
      2
                                Unregistered
      Sales of Equity Securities and Use
      of Proceeds
                                25Item
      3
                                Defaults
      Upon Senior Securities
                                25Item
      4
                                Submission
      of Matters to a Vote of Security Holders
                                25Item
      5
                                Other
      Information
                                25Item
      6
                                Exhibits
      and Reports on Form 8-K
                                26Signatures
                                28Exhibits
  2
  PART I.
FINANCIAL INFORMATION
 Item
1.  Financial Statements
 Waytronx,
Inc.
 Condensed
Consolidated Balance Sheets
  June 30, 2009
                  
                  
                  December 31,
                    2008(unaudited)Assets:Current
      Assets:Cash
      and cash equivalents
                  
                  $
                  180,824
                  
                  
                  $
                  599,200Trade
      accounts receivable, net of allowance of $135,000
                  
                  
                  2,483,767
                  
                  
                  
                  2,762,416Other
      accounts receivable
                  
                  
                  10,684
                  
                  
                  
                  110,952Other
      accounts receivable, related party
                  
                  
                  505,660
                  
                  
                  
                  194,984Inventories,
      net
                  
                  
                  3,090,007
                  
                  
                  
                  4,077,367Prepaid
      expenses and other
                  
                  
                  300,180
                  
                  
                  
                  186,520Total
      current assets
                  
                  
                  6,571,122
                  
                  
                  
                  7,931,439Property
      and equipment, net
                  
                  
                  1,133,626
                  
                  
                  
                  1,245,203Other
      assets:Investment
      - equity method
                  
                  
                  48,456
                  
                  
                  
                  120,499Technology
      rights, net
                  
                  
                  4,117,387
                  
                  
                  
                  4,134,202Patent
      costs, net
                  
                  
                  429,621
                  
                  
                  
                  558,269Other
      intangible assets, net
                  
                  
                  19,722
                  
                  
                  
                  27,878Deposits
      and other
                  
                  
                  -
                  
                  
                  
                  40,411Notes
      receivable, net
                  
                  
                  168,639
                  
                  
                  
                  182,025Debt
      offering costs, net
                  
                  
                  1,277,904
                  
                  
                  
                  1,618,678Goodwill,
      net
                  
                  
                  21,582,594
                  
                  
                  
                  32,281,148Total
      other assets
                  
                  
                  27,644,323
                  
                  
                  
                  38,963,110Total
      assets
                  
                  $
                  35,349,071
                  
                  
                  $
                  48,139,752Liabilities
      and stockholders' equity:Current
      liabilities:Accounts
      payable
                  
                  $
                  757,822
                  
                  
                  $
                  1,106,114Preferred
      stock dividends payable
                  
                  
                  5,054
                  
                  
                  
                  5,054Demand
      notes payable
                  
                  
                  1,068,674
                  
                  
                  
                  1,373,993Accrued
      expenses
                  
                  
                  2,090,774
                  
                  
                  
                  1,912,592Accrued
      compensation
                  
                  
                  611,488
                  
                  
                  
                  770,625Deferred
      revenue
                  
                  
                  -
                  
                  
                  
                  -Notes
      payable, current portion due
                  
                  
                  926,127
                  
                  
                  
                  49,200Notes
      payable, related party, current portion due
                  
                  
                  127,561
                  
                  
                  
                  1,197,865Convertible
      notes payable, current portion due
                  
                  
                  1,350,000
                  
                  
                  
                  1,350,000Total
      current liabilities
                  
                  
                  6,937,500
                  
                  
                  
                  7,765,443Long
      term notes payable, net of current portion due of $51,127 and $49,200,
      respectively
                  
                  
                  6,069,686
                  
                  
                  
                  6,095,740Long
      term notes payable, related party, net of current portion due of $127,561
      and $197,865 and discounts of $503,886 and $638,255,
      respectively
                  
                  
                  13,099,749
                  
                  
                  
                  13,022,465Long
      term convertible notes payable, related party, net of discounts of
      $3,782,120 and $5,711,395, respectively
                  
                  
                  1,117,880
                  
                  
                  
                  11,788,605Total
      liabilities
                  
                  
                  27,224,815
                  
                  
                  
                  38,672,253Commitments
      and contingencies
                  
                  
                  -
                  
                  
                  
                  -Stockholders'
      equity:Preferred
      stock, par value $0.001; 10,000,000 shares authorized
                  
                  
                  -
                  
                  
                  
                  -Convertible
      Series A preferred stock, 5,000,000 shares authorized, 50,543 shares
      issued and outstanding liquidation preference of $50,543 at June 30, 2009
      and December 31, 2008, respectively
                  
                  
                  51
                  
                  
                  
                  51Convertible
      Series B preferred stock, 30,000 shares authorized, and no shares
      outstanding at June 30, 2009 and December 31, 2008,
      respectively
                  
                  
                  -
                  
                  
                  
                  -Common
      stock, par value $0.001; 325,000,000 and 200,000,000 shares authorized and
      166,965,396 and 166,208,406 shares issued and outstanding at June 30, 2009
      and December 31, 2008, respectively
                  
                  
                  166,965
                  
                  
                  
                  166,208Common
      stock issuable, par value $0.001; (500,000 shares at June 30,
      2009)
                  
                  
                  500
                  
                  
                  
                  -Additional
      paid-in capital
                  
                  
                  60,073,728
                  
                  
                  
                  59,849,326Subscription
      receivable
                  
                  
                  -
                  
                  
                  
                  -Accumulated
      deficit
                  
                  
                  (52,116,988
                  )
                  
                  
                  (50,548,086
                  )Total
      stockholders' equity
                  
                  
                  8,124,256
                  
                  
                  
                  9,467,499Total
      liabilities and stockholders' equity
                  
                  $
                  35,349,071
                  
                  
                  $
                  48,139,752
 
 See
accompanying notes to condensed consolidated financial
statements
  3
 
 Waytronx,
Inc.
 Condensed
Consolidated Statement of Operations
 (unaudited)
 For the three months ended June 30,
                    
                    
                    For the six months ended June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Revenues:Product
      Sales
                    
                    $
                    6,016,499
                    
                    
                    $
                    4,359,365
                    
                    
                    $
                    12,103,902
                    
                    
                    $
                    4,420,010Revenue
      from freight
                    
                    
                    19,291
                    
                    
                    
                    37,089
                    
                    
                    
                    56,938
                    
                    
                    
                    37,089Total
      revenue
                    
                    
                    6,035,790
                    
                    
                    
                    4,396,454
                    
                    
                    
                    12,160,840
                    
                    
                    
                    4,457,099Cost
      of revenues
                    
                    
                    3,605,400
                    
                    
                    
                    2,645,519
                    
                    
                    
                    7,261,555
                    
                    
                    
                    2,727,602Gross
      profit (loss)
                    
                    
                    2,430,390
                    
                    
                    
                    1,750,935
                    
                    
                    
                    4,899,285
                    
                    
                    
                    1,729,497Operating
      expensesSelling,
      general and administrative
                    
                    
                    2,453,871
                    
                    
                    
                    1,584,844
                    
                    
                    
                    4,825,036
                    
                    
                    
                    2,188,843Research
      and development
                    
                    
                    72,665
                    
                    
                    
                    183,757
                    
                    
                    
                    156,064
                    
                    
                    
                    524,941Bad
      debt
                    
                    
                    13,811
                    
                    
                    
                    -
                    
                    
                    
                    51,554
                    
                    
                    
                    91,500Impairment
      of goodwill
                    
                    
                    10,698,169
                    
                    
                    
                    -
                    
                    
                    
                    10,698,169
                    
                    
                    
                    -Total
      operating expenses
                    
                    
                    13,238,516
                    
                    
                    
                    1,768,601
                    
                    
                    
                    15,730,823
                    
                    
                    
                    2,805,284Profit
      (loss) from operations
                    
                    
                    (10,808,126
                    )
                    
                    
                    (17,666
                    )
                    
                    
                    (10,831,538
                    )
                    
                    
                    (1,075,787
                    )Other
      income (expense)Other
      income
                    
                    
                    52,997
                    
                    
                    
                    55,409
                    
                    
                    
                    98,482
                    
                    
                    
                    57,787Other
      expense
                    
                    
                    (145,169
                    )
                    
                    
                    (38,555
                    )
                    
                    
                    (145,202
                    )
                    
                    
                    (38,555
                    )Derivative
      income
                    
                    
                    -
                    
                    
                    
                    2,782,573
                    
                    
                    
                    -
                    
                    
                    
                    2,782,573Investment
      income (loss)
                    
                    
                    (63,985
                    )
                    
                    
                    (4,264
                    )
                    
                    
                    (72,043
                    )
                    
                    
                    (4,264
                    )Interest
      expense - intrinsic value of convertible debt, amortization of debt
      offering costs and amortization of debt discount
                    
                    
                    (774,160
                    )
                    
                    
                    (519,528
                    )
                    
                    
                    (1,612,931
                    )
                    
                    
                    (578,495
                    )Interest
      expense
                    
                    
                    (377,799
                    )
                    
                    
                    (290,669
                    )
                    
                    
                    (839,725
                    )
                    
                    
                    (373,982
                    )Total
      other income (expense), net
                    
                    
                    (1,308,116
                    )
                    
                    
                    1,984,966
                    
                    
                    
                    (2,571,419
                    )
                    
                    
                    1,845,064Income
      (loss) before extraordinary items
                    
                    
                    (12,116,242
                    )
                    
                    
                    1,967,300
                    
                    
                    
                    (13,402,957
                    )
                    
                    
                    769,277Extraordinary
      itemsGain
      on debt extinguishments
                    
                    
                    11,834,055
                    
                    
                    
                    -
                    
                    
                    
                    11,834,055
                    
                    
                    
                    -Net
      profit (loss)
                    
                    
                    (282,187
                    )
                    
                    
                    1,967,300
                    
                    
                    
                    (1,568,902
                    )
                    
                    
                    769,277Preferred
      stock dividends
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Net
      profit (loss) allocable to common stockholders
                    
                    $
                    (282,187
                    )
                    
                    $
                    1,967,300
                    
                    
                    $
                    (1,568,902
                    )
                    
                    $
                    769,277Basic
      and diluted profit (loss) per common share
                    
                    $
                    -
                    
                    
                    $
                    0.01
                    
                    
                    $
                    (0.01
                    )
                    
                    $
                    -Diluted
      profit (loss) per common share
                    
                    $
                    -
                    
                    
                    $
                    0.01
                    
                    
                    $
                    (0.01
                    )
                    
                    $
                    0.01Basic
      weighted average common and common equivalents shares outstanding
      outstanding
                    
                    
                    166,963,422
                    
                    
                    
                    160,293,625
                    
                    
                    
                    166,774,961
                    
                    
                    
                    159,157,544Fully
      diluted weighted average common and common equivalents shares outstanding
      outstanding
                    
                    
                    166,963,422
                    
                    
                    
                    210,674,984
                    
                    
                    
                    166,774,961
                    
                    
                    
                    190,656,950
 
 See
accompanying notes to condensed consolidated financial
statements
  4
  Waytronx,
Inc.
 Condensed
Consolidated Statements of Cash Flows
 (unaudited)
 For
      the six months ended June 30,2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      profit (loss)
                  
                  $
                  (1,568,902
                  )
                  
                  $
                  769,277Adjustments
      to reconcile net profit (loss) to net cash used in operating
      activities:Stock,
      warrants, options and notes issued for compensation and
      services
                  
                  
                  220,758
                  
                  
                  
                  586,295Change
      in fair value of warrant liability
                  
                  
                  -
                  
                  
                  
                  (2,782,573
                  )Non-cash
      interest expense, including amortization of beneficial conversion value,
      warrant related debt discounts and intrinsic value of convertible debt and
      amortization of debt discount and amortization of debt offering
      costs
                  
                  
                  1,612,931
                  
                  
                  
                  389,700Non-cash
      loss on securities available for sale
                  
                  
                  72,043
                  
                  
                  
                  4,264Bad
      debt expense
                  
                  
                  51,554
                  
                  
                  
                  91,500Amortization
      of technology rights
                  
                  
                  119,256
                  
                  
                  
                  119,257Amortization
      of patent costs
                  
                  
                  9,392
                  
                  
                  
                  11,437Amortization
      of website development
                  
                  
                  7,156
                  
                  
                  
                  7,155Impairment
      of goodwill
                  
                  
                  10,698,169
                  
                  
                  
                  -Impairment
      of patents
                  
                  
                  136,811
                  
                  
                  
                  -Extraordinary
      gain on extinguishments of debt
                  
                  
                  (11,834,055
                  )
                  
                  
                  -Depreciation
                  
                  
                  188,410
                  
                  
                  
                  54,506Amortization
      of goodwill
                  
                  
                  385
                  
                  
                  
                  -(Increase)
      decrease in assets:Trade
      accounts receivable and other accounts receivable
                  
                  
                  327,363
                  
                  
                  
                  (1,217,691
                  )Inventory
                  
                  
                  987,360
                  
                  
                  
                  (183,753
                  )Prepaid
      expenses and other current assets
                  
                  
                  (113,660
                  )
                  
                  
                  (26,826
                  )Deposits
      and other assets
                  
                  
                  40,411
                  
                  
                  
                  14,022Increase
      (decrease) in liabilities:Accounts
      payable
                  
                  
                  (348,292
                  )
                  
                  
                  (89,367
                  )Accrued
      expenses
                  
                  
                  178,182
                  
                  
                  
                  297,097Accrued
      compensation
                  
                  
                  (159,137
                  )
                  
                  
                  61,358Deferred
      revenues
                  
                  
                  -
                  
                  
                  
                  (12,140
                  )NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                  
                  
                  626,135
                  
                  
                  
                  (1,906,482
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      paid upon merger, net of cash received
                  
                  
                  -
                  
                  
                  
                  (5,816,468
                  )Investment
      in technology rights
                  
                  
                  (102,441
                  )
                  
                  
                  -Investment
      in patents
                  
                  
                  (17,555
                  )
                  
                  
                  (35,729
                  )Proceeds
      from Notes receivable
                  
                  
                  (337,725
                  )
                  
                  
                  -Payments
      from Notes receivable
                  
                  
                  40,435
                  
                  
                  
                  -Purchase
      of property and equipment
                  
                  
                  (75,833
                  )
                  
                  
                  (17,161
                  )NET
      CASH USED IN INVESTING ACTIVITIES
                  
                  
                  (493,119
                  )
                  
                  
                  (5,869,358
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from demand notes payable
                  
                  
                  -
                  
                  
                  
                  797,928Proceeds
      from notes and loans payable
                  
                  
                  -
                  
                  
                  
                  6,600,000Proceeds
      from notes and loans payable, related party
                  
                  
                  -
                  
                  
                  
                  100,000Payments
      on demand notes payable
                  
                  
                  (305,319
                  )
                  
                  
                  -Payments
      on notes and loans payable
                  
                  
                  (24,128
                  )
                  
                  
                  (5,664
                  )Payments
      on notes and loans payable, related party
                  
                  
                  (226,845
                  )
                  
                  
                  -Proceeds
      from sales of common stock and exercise of warrants and options, net of
      offering costs
                  
                  
                  4,900
                  
                  
                  
                  599,160NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                  
                  
                  (551,392
                  )
                  
                  
                  8,091,424NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                  
                  
                  (418,376
                  )
                  
                  
                  315,584Cash
      and cash equivalents at end of year
                  
                  
                  599,200
                  
                  
                  
                  42,639Cash
      and cash equivalents at end of period
                  
                  $
                  180,824
                  
                  
                  $
                  358,223
 
 (continued)
  5
  Waytronx,
Inc.
 Condensed
Consolidated Statements of Cash Flows (continued)
 (unaudited)
 
 For the six months ended June
      30,2009
                    
                    
                    2008SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Income
      taxes paid
                    
                    $
                    -
                    
                    
                    $
                    -Interest
      paid
                    
                    $
                    540,151
                    
                    
                    $
                    -SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Common
      stock issued for conversion of Series A preferred stock and
      dividends
                    
                    $
                    -
                    
                    
                    $
                    25Discount
      on debt for intrinsic value of convertible notes payable
                    
                    $
                    1,272,157
                    
                    
                    $
                    188,795Notes
      Payable issued for purchase of CUI, Inc.
                    
                    $
                    -
                    
                    
                    $
                    31,500,000Amortization
      of debt offering costs
                    
                    $
                    340,774
                    
                    
                    $
                    -Common
      stock issuable for consulting services and compensation and accrued
      liabilities payable in common stock
                    
                    $
                    95,000
                    
                    
                    $
                    370,000Reclassification
      of warrants, options and convertible notes from equity to
      liabilities
                    
                    $
                    -
                    
                    
                    $
                    5,644,778
 
 See
accompanying notes to condensed consolidated financial
statements
  6
  Waytronx,
Inc.
 Notes to
the Condensed Consolidated Financial Statements
 (Unaudited)
 
 1.BASIS OF
PRESENTATION AND GOING CONCERN
 
 Waytronx,
Inc. (formerly known as OnScreen Technologies, Inc.) has pioneered and is
commercializing innovative thermal management solutions capable of
revolutionizing the semiconductor, solar and electronic packaging industries,
among others.  This advanced technology involves the use of fluid
displacement to move heat away from the source instead of traditional passive
heat transference through solid materials.  Utilizing its patented
WayCool hybrid mesh architecture, Waytronx can enhance system performance and
remove thermal barriers caused by "microwarming" in today's advanced computing
devices.  The Company's proprietary cooling solutions for central and
graphics processors, solar energy devices and power supplies provide more cost
effective and efficient thermal management to the electronics
industry.
 
 In May
2008, Waytronx formed a wholly owned subsidiary that acquired the assets of CUI,
Inc., a provider of electromechanical components and industrial controls for OEM
manufacturing.  Since its inception in 1989, CUI has been delivering
quality products, extensive application solutions and superior personal
service.  CUI's solid customer commitment and honest corporate message
are a hallmark in the industry.
 
 Effective
July 1, 2009, Waytronx acquired Comex Instruments Ltd. and 49% of Comex
Electronics Ltd. that includes an associated distribution network, both
companies are Japanese based providers of electronic components.  The
Comex acquisition provides a manufacturing component which will allow Waytronx
to manufacture some of its own products, such as the AMT encoder, in
Japan.
 
 The
accompanying financial statements have been prepared on the assumption that
Waytronx will continue as a going concern.  As reflected in these
financial statements, we had a net loss of $1,568,902 and cash from operations
of $626,135 for the six months ended June 30, 2009, and an accumulated deficit
of $52,116,988 at June 30, 2009.  These factors raise substantial
doubt about our ability to continue as a going concern which is dependent upon
the ability to bring the WayCool products to market, generate increased sales,
obtain positive cash flow from operations and raise additional capital as well
as grow CUI, Comex Instruments and Comex Electronics sales.  The
financial statements do not include any adjustments that may result from the
outcome of this uncertainty.
 
 If
necessary, we will continue to raise additional capital to provide sufficient
cash to meet the funding required to commercialize our technology product
lines.  As we continue to expand and develop technology and product
lines, additional funding may be required.  There have been negative
cash flows from operations and recurring net losses in the past and there can be
no assurance as to the availability or terms upon which additional financing and
capital might be available if needed.
 
 The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and the rules and regulations of the United States Securities and Exchange
Commission for interim financial information which includes condensed financial
statements.  Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial position and
results of operations and should be read in conjunction with the Annual Report,
Form 10-K for the year ended December 31, 2008 as well as filings made related
to the acquisition of CUI, Inc.
 
 It is
management's opinion that all material adjustments (consisting of normal
recurring adjustments) have been made which are necessary for a fair financial
statement presentation.  The results for the interim period are not
necessarily indicative of the results to be expected for the
year.
  7
  2.ACCOUNTING
POLICIES
 
 Use of
Estimates
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period.  Actual results could differ from those
estimates.  Significant estimates in 2009 and 2008 include estimates
used to review the Company’s long-lived assets for impairment, inventory
valuation, valuations of non-cash capital stock issuances, valuations of
derivatives and the valuation allowance on deferred tax assets.
 
 Principles of
Consolidation
 The
consolidated financial statements include the accounts of Waytronx, Inc. and its
wholly owned subsidiary CUI, Inc. (for the period May 16, 2008 to June 30, 2009)
hereafter referred to as the “Company”.  Significant intercompany
accounts and transactions have been eliminated in consolidation.
 
 Fair Value of Financial
Instruments
 The
carrying amounts of the Company’s cash and cash equivalents, accounts
receivable, prepaid expense and other assets, accounts payable, accrued
liabilities, notes payable and deferred compensation approximate their fair
value due as of June 30, 2009.
 
 Cash
 Cash
includes deposits at financial institutions with maturities of three months or
less.  The Company at times has cash in banks in excess of FDIC
insurance limits and places its temporary cash investments with high credit
quality financial institutions.  At June 30, 2009, the Company had no
cash balances at financial institutions which were in excess of the FDIC insured
limits.  However, the Company maintained balances of $113,532 in
foreign financial institutions.
 
 Accounts
Receivable
 The
Company grants credit to its customers, with standard terms of Net 30
days.  The Company routinely assesses the financial strength of its
customers and, therefore, believes that its accounts receivable credit risk
exposure is limited.
 
 Inventory
 Inventories
consist of finished products and are stated at the lower of cost or market;
using the first-in, first-out (FIFO) method as a cost flow
convention.  Inventory consists of finished goods.
 
 Furniture, Equipment and
Software
 Furniture,
equipment and software are recorded at cost and include major expenditures,
which increase productivity or substantially increase useful lives.
 
 Maintenance,
repairs and minor replacements are charged to expenses when
incurred.  When furniture and equipment is sold or otherwise disposed
of, the asset and related accumulated depreciation are removed from this
account, and any gain or loss is included in the statement of
operations.
 
 The cost
of furniture, equipment and software is depreciated over the estimated useful
lives of the related assets.  Depreciation is computed using the
straight-line method for financial reporting purposes.  The estimated
useful lives and accumulated depreciation for furniture, equipment and software
are as follows:
 
 Estimated
                          Useful
      LifeFurniture
      and equipment
                        5
      to 7 yearsSoftware
                        3
      to 5
years
  8
  Identifiable Intangible
Assets
 Intangible
assets are stated at cost net of accumulated amortization and
impairment.  Intangible assets other than goodwill, technology rights
and patents are amortized over an estimated useful life of 15
years.  Technology rights are amortized over a twenty year life and
are reviewed for impairment annually.  Patent costs are amortized over
the life of the patent.  Any patents not approved will be expensed at
that time.  During the six months ended June 30, 2009 the company
recorded impairment charges of $10,698,169 related to goodwill and $136,811
related to patents.
 
 Intangible
assets consist of the following as of June 30, 2009:
 
 Technology
      Rights
                                  
                                  $
                                  5,046,406Accumulated
      amortization
                                  
                                  
                                  (929,019
                                  )Net
                                  
                                  $
                                  4,117,387Patent
      costs
                                  
                                  $
                                  456,550Accumulated
      amortization
                                  
                                  
                                  (26,929
                                  )Net
                                  
                                  $
                                  429,621Debt
      offering costs
                                  
                                  $
                                  2,044,646Accumulated
      amortization
                                  
                                  
                                  (766,742
                                  )Net
                                  
                                  $
                                  1,277,904Goodwill
                                  
                                  $
                                  21,584,518Accumulated
      amortization
                                  
                                  
                                  (1,924
                                  )Net
                                  
                                  $
                                  21,582,594Other
      intangible assets
                                  
                                  $
                                  72,933Accumulated
      amortization
                                  
                                  
                                  (53,211
                                  )Net
                                  
                                  $
                                  19,722
  Investment in
Affiliate
 Through
the acquisition of CUI, Inc. the Company obtained 352,589 common shares
representing a 10.47% interest in Test Products International, Inc., hereafter
referred to as TPI.  TPI is a provider of handheld test and
measurement equipment.  The Company also has a demand receivable from
TPI of $181,893 as of June 30, 2009.  The Company enjoys a close
association with this affiliate through common Board of Director membership and
participation, that allows for a significant amount of influence over affiliate
business decisions.  Accordingly, for financial statement purposes,
the Company accounts for its investment in this affiliated entity under the
equity method.
 
 A summary
of the unaudited financial statements of the affiliate as of June 30, 2009 is as
follows:
 
 Current
      assets
                          
                          $
                          7,119,140Non-current
      assets
                          
                          
                          793,389Total
      Assets
                          
                          $
                          7,912,529Current
      liabilities
                          
                          $
                          5,065,722Non-current
      liabilities
                          
                          
                          1,651,364Stockholders'
      equity
                          
                          
                          1,195,443Total
      Liabilities and Stockholders' Equity
                          
                          $
                          7,912,529Revenues
                          
                          $
                          3,814,703Operating
      Loss
                          
                          
                          (500,485
                          )Net
      Loss
                          
                          
                          (688,093
                          )Company
      share of Net Loss at 10.47%
                          
                          
                          (72,043
                          )Equity
      investment in affiliate
                          
                          $
                          48,456
  9
 
 Asset
Impairment
 The
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset exceeds its fair
value and may not be recoverable.  In performing the review for
recoverability, the future cash flows expected to result from the use of the
asset and its eventual disposition are estimated.  If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized as the
excess of the carrying amount over the fair value.  Otherwise, an
impairment loss is not recognized.  Management estimates the fair
value and the estimated future cash flows expected.  Any changes in
these estimates could impact whether there was impairment and the amount of the
impairment.  During the six months ended June 30, 2009 the company
recorded impairment charges of $10,698,169 related to goodwill and $136,811
related to patents.
 
 Patent
Costs
 The
Company estimates the patents it has filed have a future beneficial value;
therefore it capitalizes the costs associated with filing for its
patents.  At the time the patent is approved, the patent costs
associated with the patent are amortized over the useful life of the
patent.  If the patent is not approved, at that time the costs will be
expensed.  A change in the estimate of the patent having a future
beneficial value will impact the other assets and expense accounts.
 
 Derivative
Liabilities
 The
Company accounts for its embedded conversion features and freestanding warrants
pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities”, which requires a periodic valuation of the fair value of derivative
instruments and a corresponding recognition of liabilities associated with such
derivatives.  The recognition of derivative liabilities related to the
issuance of shares of common stock is applied first to the proceeds of such
issuance, at the date of issuance, and the excess of derivative liabilities over
the proceeds is recognized as other expense in the accompanying consolidated
financial statements.  The recognition of derivative liabilities
related to the issuance of convertible debt is applied first to the proceeds of
such issuance as a debt discount, at the date of issuance, and the excess of
derivative liabilities over the proceeds is recognized as other expense in the
accompanying consolidated financial statements.  Any subsequent
increase or decrease in the fair value of the derivative liabilities is
recognized as other expense or other income, respectively.  The
reclassification of a contract is reassessed at each balance sheet
date.  If a contract is reclassified from permanent equity to an asset
or a liability, the change in the fair value of the contract during the period
the contract was classified as equity is accounted for as an adjustment to
equity.  If a contract is reclassified from an asset or liability to
equity, gains or losses recorded to account for the contract at fair value
during the period that contract was classified as an asset or a liability are
not reversed but instead are accounted for as an adjustment to
equity.
 
 Revenue
Recognition
 The
recognition of revenues requires judgment, including whether a sale includes
multiple elements, and if so, whether vendor-specific objective evidence (VSOE)
of fair value exists for those elements.  Customers receive certain
elements of Waytronx products over a period of time.  These elements
include licensing rights to manufacture and sell our proprietary patent
protected products.  The ability to identify VSOE for those elements
and the fair value of the respective elements could materially impact the amount
of earned and unearned revenue.  Waytronx does not have any history as
to the costs expected to be incurred in granting licensing rights relating to
its products.  Therefore, revenues may be recorded that are not in
proportion to the costs expected to be incurred in performing these
services.
 
 Revenues
in connection with electronic devices and component sales by CUI, Inc. are
recognized at the time the product is shipped to the customer.
 
 Shipping and Handling
Costs
 Amounts
billed to customers in sales transactions related to shipping and handling
represent revenues earned for the goods provided and are included in
sales.  Costs of shipping and handling are included in cost of
revenues.
  10
  Stock issued for services to
other than Employees
 Common
stock, stock options and common stock warrants issued to other than employees or
directors are recorded on the basis of their fair value, as required by SFAS
No. 123(R), which is measured as of the date required by EITF
Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services.” In accordance with EITF 96-18, the stock options or common stock
warrants are valued using the Black-Scholes option pricing model on the basis of
the market price of the underlying common stock on the “valuation date,” which
for options and warrants related to contracts that have substantial
disincentives to non-performance is the date of the contract, and for all other
contracts is the vesting date. Expense related to the options and warrants is
recognized on a straight-line basis over the shorter of the period over which
services are to be received or the vesting period. Where expense must be
recognized prior to a valuation date, the expense is computed under the
Black-Scholes option pricing model on the basis of the market price of the
underlying common stock at the end of the period, and any subsequent changes in
the market price of the underlying common stock up through the valuation date is
reflected in the expense recorded in the subsequent period in which that change
occurs.
 
 Foreign Currency
Translation
 The
financial statements of the Company's foreign offices have been translated into
U.S. dollars in accordance with SFAS No. 52, Foreign Currency Translation (SFAS
52). All balance sheet accounts have been translated using the exchange rate in
effect at the balance sheet date. Income statement amounts have been translated
using an appropriately weighted average exchange rate for the year. The
translation gains and losses resulting from the changes in exchange rates during
2009 have been reported in accumulated other comprehensive income, except for
gains and losses resulting from the translation of intercompany receivables and
payables, which are included in earnings for the period.
 
 Segment
Reporting
 Upon the
acquisition of CUI, Inc., Waytronx now has operating segments to
report.  The Company has identified four operating segments based on
the products offered.  The four segments are External Power, Internal
Power, Industrial Controls and Other.  The External Power segment is
focused primarily on sales of external power supplies and related
components.  The Internal Power segment is focused primarily on sales
of internal power supplies and related components.  The Industrial
Controls segment is focused primarily on sales of encoding devices and related
components.  The Other category represents activity of segments that
do not meet the threshold for segment reporting and are combined.
 
 The
following information is presented for the six months ended June 30, 2009 for
operating segment activity:
 
 External
                      Power
                    
                    
                    Internal
                      Power
                    
                    
                    Industrial
                      Controls
                    
                    
                    Other
                    
                    
                    TotalsRevenues
      from external customers
                    
                    $
                    7,096,840
                    
                    
                    $
                    3,074,128
                    
                    
                    $
                    1,326,626
                    
                    
                    $
                    663,246
                    
                    
                    $
                    12,160,840Intersegment
      revenues
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Derivative
      income
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Interest
      revenues
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    13,985
                    
                    
                    $
                    13,985Equity
      in losses of unconsolidated affiliate
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    (72,043
                    )
                    
                    $
                    (72,043
                    )Interest
      expense - intrinsic value of convertible debt and amortization of debt
      discount
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    1,612,931
                    
                    
                    $
                    1,612,931Interest
      expense
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    839,725
                    
                    
                    $
                    839,725Depreciation
      and amortization
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    324,599
                    
                    
                    $
                    324,599Segment
      profit (loss)
                    
                    $
                    1,748,506
                    
                    
                    $
                    319,079
                    
                    
                    $
                    58,754
                    
                    
                    $
                    (3,695,241
                    )
                    
                    $
                    (1,568,902
                    )Other
      significant non-cash items:Stock,
      warrants and notes issued for compensation and services
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    220,758
                    
                    
                    $
                    220,758Impairment
      of goodwill
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    10,698,169
                    
                    
                    $
                    10,698,169Impairment
      of patents
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    136,811
                    
                    
                    $
                    136,811Gain
      on debt extinguishments
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    11,834,055
                    
                    
                    $
                    11,834,055Segment
      assets
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    35,349,071
                    
                    
                    $
                    35,349,071Expenditures
      for segment assets
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    195,829
                    
                    
                    $
                    195,829
  11
  The
following information is presented for the six months ended June 30, 2008 for
operating segment activity:
 
 External
                        Power
                      
                      
                      Internal
                        Power
                      
                      
                      Industrial
                        Controls
                      
                      
                      Other
                      
                      
                      TotalsRevenues
      from external customers
                      
                      $
                      2,965,541
                      
                      
                      $
                      909,489
                      
                      
                      $
                      431,453
                      
                      
                      $
                      150,616
                      
                      
                      $
                      4,457,099Intersegment
      revenues
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Derivative
      income
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      2,782,573
                      
                      
                      $
                      2,782,573Interest
      revenues
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      7,309
                      
                      
                      $
                      7,309Equity
      in losses of unconsolidated affiliate
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (4,264
                      )
                      
                      $
                      (4,264
                      )Interest
      expense - intrinsic value of convertible debt and amortization of debt
      discount
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      578,495
                      
                      
                      $
                      578,495Interest
      expense
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      373,982
                      
                      
                      $
                      373,982Depreciation
      and amortization
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      41,541
                      
                      
                      $
                      41,541Segment
      profit (loss)
                      
                      $
                      851,273
                      
                      
                      $
                      133,381
                      
                      
                      $
                      9,438
                      
                      
                      $
                      (224,815
                      )
                      
                      $
                      769,277Other
      significant non-cash items:Stock,
      warrants and notes issued for compensation and services
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      573,795
                      
                      
                      $
                      573,795Segment
      assets
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      47,176,108
                      
                      
                      $
                      47,176,108Acquisition
      of CUI, Inc.
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      37,500,000
                      
                      
                      $
                      37,500,000Expenditures
      for segment assets
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      52,890
                      
                      
                      $
                      52,890
  The
operating segments do not hold assets individually as segment assets as all
Company assets are utilized for each segment.
 
 Reclassification
 Certain
amounts from prior period have been reclassified to conform to the current
period presentation.
 
 Recent Accounting
Pronouncements
 In May
2009, the FASB issued SFAS No. 165 “Subsequent Events” (“SFAS 165”). SFAS 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. SFAS 165 sets forth (1) The period after the balance
sheet date during which management of a reporting entity should evaluate events
or transactions that may occur for potential recognition or disclosure in the
financial statements, (2) The circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (3) The disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. SFAS 165 is
effective for interim or annual financial periods ending after June 15, 2009.
The adoption of this statement did not have a material effect on the Company’s
financial statements.
 
 In June
2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 improves
the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets. SFAS 166 is effective as
of the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter. The
Company is evaluating the impact the adoption of SFAS 166 will have on its
financial statements.
 
 In June
2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”
(“SFAS 167”). SFAS 167 improves financial reporting by enterprises involved with
variable interest entities and to address (1) the effects on certain provisions
of FASB Interpretation No. 46 (revised December 2003), “Consolidation of
Variable Interest Entities”, as a result of the elimination of the qualifying
special-purpose entity concept in SFAS 166 and (2) constituent concerns about
the application of certain key provisions of Interpretation 46(R), including
those in which the accounting and disclosures under the Interpretation do not
always provide timely and useful information about an enterprise’s involvement
in a variable interest entity. SFAS 167 is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. The Company is evaluating the
impact the adoption of SFAS 167 will have on its financial
statements.
  12
  In June
2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles—a replacement of
FASB Statement No. 162”. The FASB Accounting Standards Codification
(“Codification”) will be the single source of authoritative nongovernmental U.S.
generally accepted accounting principles. Rules and interpretive releases of the
SEC under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. SFAS 168 is effective for interim and annual periods
ending after September 15, 2009. All existing accounting standards are
superseded as described in SFAS 168. All other accounting literature not
included in the Codification is nonauthoritative. The Company is evaluating the
impact the adoption of SFAS 168 will have on its financial
statements.
 
 3.ACQUISITION
 
 Effective
May 16, 2008, Waytronx formed a wholly owned subsidiary that acquired CUI,
Inc.  The funding for this acquisition was provided by a $6,000,000
bank note, a $14,000,000 seller’s note, and a $17,500,000 convertible seller’s
note.
 
 In May
2009, Waytronx and the debt holder of the $17,500,000 convertible seller’s note,
IED, Inc., agreed to amend the $17,500,000 convertible seller’s note related to
the acquisition of CUI, Inc. by reducing the conversion rate from $0.25 to $0.07
per share to reflect the stock price for the ten day trailing average preceding
April 24, 2009, the date of the agreement.  The agreement specifically
retains the total maximum convertible shares at 70,000,000 as stated in the
original Note.  This amendment effectively reduces the Note principal from
$17,500,000 to $4,900,000. As a result, the Company recognized an
extraordinary gain on the extinguishment of this debt of $11,808,513 and a
reduction in the related discount of debt of $791,487.
 
 The table
below summarizes the unaudited pro forma information of the results of
operations for the six months ended June 30, 2008 as though the acquisition had
been completed as of January 1, 2008:
 
 2008Gross
      revenue
                      
                      $
                      14,171,151Total
      expenses
                      
                      
                      12,856,204Net
      profit (loss) before taxes
                      
                      $
                      1,314,947Earnings
      per share
                      
                      $
                      0.01
 
 4.INCOME (LOSS)PER COMMON
SHARE
 
 Common
stock equivalents in the three and six months ended June 30, 2009 were
anti-dilutive, thus the diluted weighted average common shares outstanding for
this period are the same as the basic weighted average common shares
outstanding.  Common stock equivalents in the three and six months
ended June 30, 2008 were dilutive.
 
 At June
30, 2009 and 2008, respectively, 102,567,780 and 106,796,800 potential common
stock shares are issuable upon the exercise of warrants and options and
conversion of debt to common stock.  These are excluded from computing
the diluted net income (loss) per share for the three and six months ended June
30, 2009 as the effect of such shares would be anti-dilutive.  At June
30, 2008, 1,965,501 shares related to warrants and options and 2,800,000 shares
related to the conversion of debt were excluded from the June 30, 2008
computation of the diluted earnings per share as they were anti-dilutive due to
their exercise price being in excess of the average close price for the three
and six month period ended.
  13
 
 The
following table sets forth the computation of basic earnings per
share:
 
 Three months
                    ended
                    June 30, 2009
                  
                  
                  Three months
                    ended
                    June 30, 2008
                  
                  
                  Six months ended
                    June 30, 2009
                  
                  
                  Six monthsended
                    June 30, 2008Net
      income (loss) for the period
                  
                  $
                  (282,187
                  )
                  
                  $
                  1,967,300
                  
                  
                  $
                  (1,568,902
                  )
                  
                  $
                  769,277Weighted
      average number of shares outstanding
                  
                  
                  166,963,422
                  
                  
                  
                  160,293,625
                  
                  
                  
                  166,774,961
                  
                  
                  
                  159,157,544Weighted
      average number of common and common equivalent shares
                  
                  
                  166,963,422
                  
                  
                  
                  160,293,625
                  
                  
                  
                  166,774,961
                  
                  
                  
                  159,157,544Basic
      earnings (loss) per share
                  
                  $
                  (0.00
                  )
                  
                  $
                  0.01
                  
                  
                  $
                  (0.01
                  )
                  
                  $
                  0.00
 
 Three months
                      ended
                      June 30, 2009
                    
                    
                    Three months
                      ended
                      June 30, 2008
                    
                    
                    Six months ended
                      June 30, 2009
                    
                    
                    Six monthsended
                      June 30, 2008Net
      income (loss) for the period
                    
                    $
                    (282,187
                    )
                    
                    $
                    1,967,300
                    
                    
                    $
                    (1,568,902
                    )
                    
                    $
                    769,277Add:  Adjustment
      for interest and discount amortization on 4% convertible notes (previously
      computed)
                    
                    
                    -
                    
                    
                    
                    337,787
                    
                    
                    
                    -
                    
                    
                    
                    337,78712%
      convertible notes and discount amortization
                    
                    
                    
                    
                    
                    
                    212,761
                    
                    
                    
                    
                    
                    
                    
                    306,195Adjusted
      net income (loss)
                    
                    $
                    (282,187
                    )
                    
                    $
                    2,517,848
                    
                    
                    $
                    (1,568,902
                    )
                    
                    $
                    1,413,259Weighted
      average number of shares outstanding
                    
                    
                    166,963,422
                    
                    
                    
                    160,293,625
                    
                    
                    
                    166,774,961
                    
                    
                    
                    159,157,544Add:  Weighted
      average shares assumed to be Issued upon conversion of 4% convertible
      notes as of the date of issuance (previously computed)
                    
                    
                    -
                    
                    
                    
                    35,384,615
                    
                    
                    
                    -
                    
                    
                    
                    17,692,308Warrants
      and options as of beginning of period
                    
                    
                    -
                    
                    
                    
                    6,240,549
                    
                    
                    
                    -
                    
                    
                    
                    5,795,931Warrants
      and options as of date of issue
                    
                    
                    -
                    
                    
                    
                    1,487,473
                    
                    
                    
                    -
                    
                    
                    
                    742,44512%
      convertible notes as of beginning of period
                    
                    
                    -
                    
                    
                    
                    7,268,722
                    
                    
                    
                    -
                    
                    
                    
                    7,268,72212%
      convertible notes as of date of issue
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Weighted
      average number of common and common equivalent shares
                    
                    
                    166,963,422
                    
                    
                    
                    210,674,984
                    
                    
                    
                    166,774,961
                    
                    
                    
                    190,656,950Diluted
      earnings (loss) per share
                    
                    $
                    (0.00
                    )
                    
                    $
                    0.01
                    
                    
                    $
                    (0.01
                    )
                    
                    $
                    0.01
 
 5.INCOME
TAXES
 
 An income
tax benefit has not been recognized for operating losses generated in prior
periods based on uncertainties concerning the ability to generate taxable income
in future periods.  The tax benefit as of the six months ended June
30, 2009 and 2008 is offset by a valuation allowance established against
deferred tax assets arising from operating losses and other temporary
differences, the realization of which could not be considered more likely than
not.  In future periods, tax benefits and related deferred tax assets
will be recognized when management considers realization of such amounts to be
more likely than not.
 
 6.WORKING CAPITAL
LINE OF CREDIT
 
 At June
30, 2009, the Company had a $3,000,000 working capital line of credit with Key
Bank, interest payable monthly at the bank’s prime lending rate less 0.25
percentage points (3.00% at June 30, 2009), maturing July 1, 2009.  At
June 30, 2009, the balance outstanding on the line of credit was
$1,068,674.  In July 2009, the working capital line of credit was
extended to September 1, 2009.
 
 7.OPTIONS AND
WARRANTS
 
 On
January 5, 2009 the Company Board of Directors received and approved a written
report and recommendations of the Compensation Committee which included a
detailed executive equity compensation report and market analysis and the
recommendations of Compensia, Inc., a management consulting firm that provides
executive compensation advisory services to compensation committees and senior
management of knowledge-based companies.  The Compensation Committee
used the report and analysis as a basis for its formal written recommendation to
the board.  Pursuant to a January 8, 2009 board resolution the 2009
Equity Incentive Plan (Executive), a Non-Qualified Stock Option Plan, was
created and funded with 4,200,000 shares of $0.001 par value common
stock.  The Compensation Committee was appointed as the Plan
Administrator to manage the plan.
  14
  The 2009
Equity Incentive Plan (Executive) provides for the issuance of stock options to
attract, retain and motivate executive and management employees and directors
and to encourage these individuals to acquire an equity interest in the Company,
to make monetary payments to certain management employees and directors based
upon the value of the Company’s stock and to provide these individuals with an
incentive to maximize the success of the Company and further the interest of the
shareholders.  The 2009 Plan provides for the issuance of Incentive
Non Statutory Options.  The Administrator of the plan is authorized to
determine the exercise price per share at the time the option is granted, but
the exercise price shall not be less than the fair market value on the date the
option is granted.  Stock options granted under the 2009 Plan have a
maximum duration of 10 years.
 
 On May
15, 2008, the Board of Directors approved the Waytronx, Inc. 2008 Equity
Incentive Plan (“2008 Plan”) for 1,500,000 shares of the Company’s common
stock.  The 2008 Plan provides for the issuance of stock options to
attract, retain and motivate employees, to encourage employees, directors and
independent contractors to acquire an equity interest in the Company, to make
monetary payments to certain employees based upon the value of the Company’s
stock, and provide employees, directors and independent contractors with an
incentive to maximize the success of the Company and further the interest of the
shareholders.  The 2008 Plan provides for the issuance of Incentive
Stock Options and Non Statutory Options.  The Administrator of the
plan shall determine the exercise price per share at the time the option is
granted, but the exercise price shall not be less than the fair market value on
the date the option is granted.  Stock options granted under the 2008
Plan have a maximum duration of 10 years.
  On August
25, 2005, the Board of Directors approved the 2005 Equity Incentive Plan (“2005
Plan”) for 2,000,000 shares of the Company’s common stock.  The 2005
Plan provides for the issuance of stock options to attract, retain and motivate
employees, to encourage employees, directors and independent contractors to
acquire an equity interest in the Company, to make monetary payments to certain
employees based upon the value of the Company’s stock, and provide employees,
directors and independent contractors with an incentive to maximize the success
of the Company and further the interest of the shareholders.  The 2005
Plan provides for the issuance of Incentive Stock Options and Non Statutory
Options.  The Administrator of the plan shall determine the exercise
price per share at the time the option is granted, but the exercise price shall
not be less than the fair market value on the date the option is
granted.  Stock options granted under the 2005 Plan have a maximum
duration of 10 years.
  On June
26, 2000, the Company’s Board of Directors adopted the OnScreen Technologies,
Inc. 2000 Stock Option Plan (the “Plan”).  The Plan provides for the
issuance of incentive stock options (ISO’s) to any individual who has been
employed by the Company for a continuous period of at least six
months.  The Plan also provides for the issuance of Non Statutory
Options (NSO’s) to any employee who has been employed by the Company for a
continuous period of at least six months, and any director or consultant to the
Company.  The Company may also issue reload options as defined in the
plan.  The total number of common shares of common stock authorized
and reserved for issuance under the Plan is 600,000 shares.  The Board
shall determine the exercise price per share in the case of an ISO at the time
an option is granted and such price shall be not less than the fair market value
or 110% of fair market value in the case of a ten percent or greater
stockholder.  In the case of a NSO, the exercise price shall not be
less than the fair market value of one share of stock on the date the option is
granted.  Unless otherwise determined by the Board, ISO’s and NSO’s
granted under the Plan have a maximum duration of 10 years.
  15





There
were no non-vested stock options at December 31, 2008.  The fair value
of each stock option is estimated on the date of grant using a Black Scholes
Pricing Model.  During the six months ended June 30, 2009, the Company
granted 365,000 stock options to employees under the 2008 Plan with the
following assumptions; exercise price of $0.19, volatilities of 99% - 135%, risk
free interest rates of 0.73% - 0.93% and a term of 2 years.  During
the six months ended June 30, 2009, the Company granted 2,550,273 stock options
to employees and officers under the 2009 Equity Incentive Plan (Executive) with
the following assumptions; exercise price of $0.25, volatility of 99%, risk free
interest rate of 0.76% and a term of 2 years.  Additionally, the
Company granted 1,458,000 un-vested stock options to directors under the 2009
Equity Incentive Plan (Executive) with the following assumptions; exercise price
of $0.25, volatility of 99%, risk free interest rate of 0.75% and a term of 2
years.





The
following information is presented for the stock option activity for the six
months ended June 30, 2009:





Number of
                            Warrantsand
                            Options
                          
                          
                          Weighted Average
                            Exercise Price
                          
                          Weighted
                            Average
                            Remaining
                            Contract LifeOutstanding
      at December 31, 2008
                          
                          
                          5,270,000
                          
                          
                          $
                          0.13
                          
                          6.55
      yearsExercised
                          
                          
                          -
                          
                          
                          $
                          -Expired
                          
                          
                          (200,000
                          )
                          
                          $
                          0.20Forfeited
                          
                          
                          (80,000
                          )
                          
                          $
                          0.19Granted
                          
                          
                          4,373,273
                          
                          
                          $
                          0.24Outstanding
      at June 30, 2009
                          
                          
                          9,363,273
                          
                          
                          $
                          0.18
                          
                          7.69
      yearsOutstanding
      exercisable at June 30, 2009
                          
                          
                          7,905,273
                          
                          
                          $
                          0.17
                          
                          7.12
      years




The
weighted average fair value of options granted during the periods are as
follows:





2009
                    
                    
                    2008Exercise
      price lower than the market price
                    
                    $
                    -
                    
                    
                    
                    N/AExercise
      price equaled the market price
                    
                    $
                    -
                    
                    
                    
                    N/AExercise
      price exceeded the market price
                    
                    $
                    0.19
                    
                    
                    
                    N/AExercise
      price exceeded the market price
                    
                    $
                    0.25
                    
                    
                    
                    N/A





The
following information is presented for the warrant activity for the six months
ended June 30, 2009:





Weighted AverageNumber of
                                  
                                  
                                  Weighted Average
                                  
                                  RemainingWarrants
                                  
                                  
                                  Exercise Price
                                  
                                  Contract LifeOutstanding
      at December 31, 2008
                                  
                                  
                                  20,823,373
                                  
                                  
                                  
                                  0.13Exercised
                                  
                                  
                                  (490,000
                                  )
                                  
                                  
                                  0.01Expired
                                  
                                  
                                  (570,866
                                  )
                                  
                                  
                                  0.17Forfeited
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Granted
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      at June 30, 2009
                                  
                                  
                                  19,762,507
                                  
                                  
                                  
                                  0.13
                                  
                                  1.25
      YearsOutstanding
      exercisable at June 30, 2009
                                  
                                  
                                  18,262,507
                                  
                                  
                                  
                                  0.14
                                  
                                  1.35
      Years





During
the six months ended June 30, 2009, 490,000 shares of common stock were issued
in relation to the exercise of warrants with proceeds of $4,900.





8.           NOTES PAYABLE





At
December 31, 2007 eighteen-month secured convertible promissory notes totaling
$1,650,000 were outstanding and in default.  In August 2008, the
Company obtained extensions of twelve months on all notes in
default.  At June 30, 2009, $1,000,000 was included in Convertible
notes payable, current portion due.





At
December 31, 2007, twenty-four month secured promissory notes totaling
$1,100,000 were outstanding. $1,000,000 of these promissory notes were from an
entity controlled by a related party.  During the three months ended
June 30, 2009 the related party portion of $125,000 was
extinguished.  The Company paid the related party $100,000 and
recognized a gain on the extinguishment of $25,542 related to the remaining
principal and accrued interest.  The $875,000 outstanding at June 30,
2009, was included in Notes payable, current portion due.  Interest
accrues at 12% per annum, payable monthly, until the maturity of these notes at
which time principal is due.


16


During
the nine months ended September 30, 2008, 24-month unsecured convertible
promissory notes totaling $700,000 were entered into that had bonus shares
attached totaling 700,000 shares of common stock.  These shares had a
fair value of $125,653 using a Black Scholes Pricing Model.  Interest
accrues at 12% per annum, payable monthly, until the maturity of these notes at
which time the principal is due. The note holders have the right to convert the
note to common stock at $0.25 per share at any time during the term of the note,
and we recognized $188,795 in Additional Paid-in Capital related to the
beneficial conversion feature of these notes due to their immediate
vesting.  During the year ended December 31, 2008, $300,000 was paid
back and $50,000 was converted to equity.  The $350,000 outstanding at
June 30, 2009, was included in Convertible notes payable, current portion
due.





Additionally,
the Company utilized three separate notes to fund the acquisition of CUI,
Inc.  A $6,000,000 cash loan from Commerce Bank of Oregon, with a term
of 3 years, paying interest only at the prime rate less 0.50% (4.50% at June 30,
2009), and is secured by personal Letters of Credit from related
parties.





A
$14,000,000 promissory note to International Electronic Device, Inc. (formerly
CUI, Inc.), payable monthly over three years at $30,000 per month including 1.7%
annual simple interest with a balloon payment at the thirty sixth monthly
payment (May 15, 2011), with no prepayment penalty, an annual success fee of
2.3%, and the right of first refusal to the note payee, International Electronic
Device, Inc., relating to any private capital raising transactions of Waytronx
during the term of the note.  There is a discount on debt related to
this note of $503,886.  The current portion of this note is
$127,561.  The net long term balance of this note is
$13,099,749.





A
$17,500,000 convertible promissory note with 1.7% annual simple interest and a
2.3% annual success fee, permitting payee to convert any unpaid principal,
interest and success fee to Waytronx common stock at a per share price of $0.25
and at the end of the three year term (May 15, 2011) giving to Waytronx the
singular, discretionary right to convert any unpaid principal, interest and
success fee to Waytronx common stock at a per share price of
$0.25.  This note also provides a right of first refusal to the note
payee, International Electronic Device, Inc., relating to any private capital
raising transactions of Waytronx during the term of the note.  In May
2009, Waytronx and the debt holder of the $17,500,000 convertible promissory
note, IED, Inc., agreed to amend the $17,500,000 convertible promissory note
related to the acquisition of CUI, Inc. by reducing the conversion rate from
$0.25 to $0.07 per share to reflect the stock price for the ten day trailing
average preceding April 24, 2009, the date of the agreement.  The agreement
specifically retains the total maximum convertible shares at 70,000,000 as
stated in the original Note.  This amendment effectively reduces the Note
principal from $17,500,000 to $4,900,000. As a result, the Company
recognized an extraordinary gain on the extinguishment of this debt of
$11,808,513 and a reduction in the related discount of debt of
$791,487.  There is a discount on debt related to this note of
$3,782,120.  The net long term balance of this note is
$1,117,880.





Through
the acquisition of CUI, Inc., the Company has a capital lease note payable of
$120,813 as of June 30, 2009.  The current portion of the capital
lease note is $51,127 as of June 30, 2009.  The capital lease note is
related to office equipment and furniture and is secured by the same office
equipment and furniture.  The capital lease expires September 1,
2011.





9.           OTHER EQUITY TRANSACTIONS





During
the six months ended June 30, 2009, 266,990 shares of common stock were issued
to an employee in accordance with his employment agreement.  These
shares were valued at $25,000 using a thirty-day average price at December 31,
2008, in accordance with the agreement.


17


During
the six months ended June 30, 2009, 490,000 shares of common stock were issued
in relation to the exercise of warrants with proceeds of $4,900.





For the
six months ended June 30, 2009, 500,000 shares of common stock are issuable for
services performed by consultants.  $95,000 of consulting expense was
recorded in relation to this transaction based on the fair market value of the
stock on the date of grant.





10.       SUBSEQUENT
EVENTS





On July
1, 2009, Waytronx acquired Comex Instruments, Ltd. and 49% of Comex Electronics,
Ltd., for approximately $260,000.  Comex Instruments, Ltd. shall
become CUI Japan, Ltd.  The acquisition was secured by an initial
payment of approximately $105,000 due on or before September 30, 2009 to acquire
Comex Instruments and 49% of Comex Electronics.  The terms of the
acquisition call for three equal annual payments over the next three years to
acquire the remaining 51% of Comex Electronics.





In July
2009, the working capital line of credit with Key Bank was extended to September
1, 2009.





In July
2009, 40,523 shares of common stock were issued in relation to the exercise of
warrants with proceeds of $405.




The
Company, through its 49% investment in Comex Electronics, Ltd., entered into a
two year lease agreement for an apartment office space beginning in August 2009
with monthly lease expenses of approximately $3,000.


18


Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations.





General





Management’s
discussion and analysis contains various “forward looking
statements.”  Such statements consist of any statement other than a
recitation of historical fact and can be identified by the use of
forward-looking terminology such as “may,” “expect,” “anticipate,” “estimate,”
or “continue” or use of negative or other variations or comparable
terminology.





Waytronx
cautions that these forward-looking statements are further qualified by
important factors that could cause actual results to differ materially, are
necessarily speculative, and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred to
in such forward-looking statements.





Overview





Waytronx,
Inc. has pioneered and is commercializing innovative thermal management
solutions capable of revolutionizing the semiconductor, solar and electronic
packaging industries, among others.  This advanced technology involves
the use of fluid displacement to move heat away from the source instead of
traditional passive heat transference through solid
materials.  Utilizing its patented WayCool hybrid mesh architecture,
Waytronx can enhance system performance and remove thermal barriers caused by
"microwarming" in today's advanced computing devices.  The Company's
proprietary cooling solutions for central and graphics processors, solar energy
devices and power supplies provide more cost effective and efficient thermal
management to the electronics industry.





In May
2008, Waytronx formed a wholly owned subsidiary that acquired the assets of CUI,
Inc., a provider of electromechanical components and industrial controls for OEM
manufacturing.  Since its inception in 1989, CUI has been delivering
quality products, extensive application solutions, and superior personal
service.  CUI's solid customer commitment and honest corporate message
are a hallmark in the industry.





During
the six months ended June 30, 2009, Waytronx continued to incur losses from
operations.  A net loss of $1,568,902 was incurred for the six months
ended June 30, 2009.  The net loss is primarily the result of interest
expenses (both cash and non-cash) associated with debt, the impairment of
goodwill and patents offset by the extraordinary gain on the extinguishments of
debt.





Management
has continued to raise the capital needed to fund the development and marketing
of its products as well as the acquisition of CUI during 2008 and the first six
months of 2009.  During the six months ended June 30, 2009, proceeds
of $4,900 were raised from the exercise of warrants.  These funds have
assisted in the continuing development of products, in funding operations during
development of the WayCoolTM products and the efforts to license the manufacture
and sales of these products, as well as funding the acquisition and operations
of CUI, Inc.  The Company has also utilized the bank line of credit to
fund operations.  It is anticipated that Waytronx, CUI, Comex
Instruments and Comex Electronics will continue to develop and expand the
technology and product lines which may require additional funding.





Intellectual
Property





The
Company relies on various intellectual property laws and contractual
restrictions to protect its proprietary rights in products, logos and services.
These include confidentiality, invention assignment, and nondisclosure
agreements with employees, contractors, suppliers and strategic partners. The
confidentiality and nondisclosure agreements with employees, contractors and
suppliers are in perpetuity or for a sufficient length of time so as to not
threaten exposure of proprietary information.





Waytronx
continues to file and protect its intellectual property rights, trademarks and
products through filings with the US Patent and Trademark Office and, as
applicable, internationally.


19


Liquidity
and Capital Resources




General


Cash and
cash equivalents at June 30, 2009 are $180,824, and there is net working capital
deficit of $366,378.  Operations and investments in patents and
equipment have been funded through cash from operations, the bank line of credit
and proceeds from the exercise of warrants during the six month
period.





Cash used in
operations


Operating
requirements generated a positive cash flow from operations of $626,135 for the
six months ended June 30, 2009, versus a negative cash flow from operations of
$1,906,482 for the same period last year.  The increasein cash provided by
operations is primarily the result of a decrease in stock, warrants, options and
notes issued for compensation and services, zero change in the fair value of
warrant liability in 2009, increased non-cash interest expense, increase in the
loss on securities available for sale, a decrease in bad debt expense, increase
in depreciation, goodwill impairment, patents impairment, decrease in trade
accounts receivable, increase in other accounts receivable, related party, a
decrease in inventory levels, increased prepaid expenses, decreased other
current assets, decreases in accounts payable, increases in accrued expenses and
a decrease in accrued compensation.





During
the first six months of 2009 stock options have been used as a form of payment
to certain consultants, note holders, employees and directors.  For
the first six months of 2009 and 2008, a total of $220,758 and $586,295,
respectively, was recorded for compensation and services expense including
amortization of deferred compensation related to equity given, or to be given,
to employees, directors and consultants for services provided.





As
Waytronx continues to focus on the commercialization of its innovative thermal
cooling technology during 2009 and the expansion of CUI product lines, it will
continue to fund research and development related to the WayCoolTM products and
CUI products as well as sales and marketing efforts.





Capital Expenditures and
Investments


The
Company invested $102,441 in technology rights during the first six months of
2009 as compared to $0 for the same period last year.





During
the first six months of 2009 and 2008, there was $75,833 and $17,161 investment
in property and equipment, respectively.





Waytronx
invested $17,555 in patent costs during the first six months of 2009 as compared
to $35,729 for the same period last year.  It is expected that
investment in patent costs will continue throughout 2009 as patents are pursued
in order to protect the rights to use its product developments.





Financing
activities


During
the first six months of 2009, $305,319 of payments were made against the bank
working line of credit, $24,128 of payments were made against notes and loans
payable, $226,845 of payments were made against notes and loans payable, related
party and $4,900 was received from the exercise of warrants.  The
Company recognized an extraordinary gain on the extinguishments of debt of
$11,834,055 during the six months ended June 30, 2009.  Waytronx plans
on raising the capital needed to fund the further development and marketing of
its products as well as payment of its debt obligations.





Recap of liquidity and
capital resources


The
report of our independent registered public accounting firm on our financial
statements as of December 31, 2008 contains an explanatory paragraph expressing
substantial doubt with respect to our ability to continue as a going
concern.  Prior to the acquisition of CUI, Inc. by a wholly owned
subsidiary, the Company was not generating significant revenues to fund
operations.  Subsequent to the acquisition of CUI, Inc., management
believes the Company is generating sufficient revenues to fund
operations.  As of June 30, 2009 the Company had an accumulated
deficit of $52,116,988.


20


The
Company will seek to raise additional capital as needed for the
commercialization of its WayCool technology product lines as well as the
continued development and expansion of the CUI product lines and
technology.  As needed, the Company will attempt to raise these funds
through borrowing instruments or issuing additional equity.





As of
June 30, 2009 CUI, Inc. maintained a line of credit with Key Bank granting
borrowings of up to $3,000,000 with interest payable monthly at the bank’s prime
lending rate less 0.25 percentage points.





Management
continues to commercialize and otherwise develop its proprietary WayCool and
WayFast Technologies.  Negotiations are continuing with BAE Systems, the
North American Division of British Aerospace, to explore uses for the WayCool
Thermal Management in several BAE/Government projects.  While Management
does not expect immediate commercial revenue from the technology, it is expected
to generate significant research & development and non-recurring engineering
revenues to the company in the next several months.  There is no
assurance that it will generate material revenues by that date or that revenues
will be sufficient to cover all operating and other expenses.





The
Company expects the revenues from CUI to help cover operating and other expenses
for the next twelve months of operations.  If revenues are not
sufficient to cover all operating and other expenses, other funding will be
required.  There is no assurance that such additional capital will be
able to be raised.





Results
of Operations





Revenue


During
the six months ended June 30, 2009 and 2008, revenue was $12,160,840 and
$4,457,099, respectively.  The revenue for the six months ended June
30, 2009 is comprised of $12,077,400 from CUI products, $56,938 for freight, and
$26,502 from RediAlertTM products.  The revenue for the six months
ended June 30, 2008 is comprised of $4,341,295 from CUI products, $37,089 for
freight, $7,000 for carbon related to the WayCool products, $10,000 for a
cancellation fee, $58,975 from Living WindowTM products and related add-ons, and
$2,740 from other income.





During
the three months ended June 30, 2009 and 2008, revenue was $6,035,790 and
$4,396,454, respectively.  The revenue for the three months ended June
30, 2009 is comprised of $6,016,499 from CUI products and $19,291 for
freight.  The revenue for the three months ended June 30, 2008 is
comprised of $4,341,295 from CUI products, $37,089 for freight, $7,000 for
carbon related to the WayCool products, $10,000 for a cancellation fee, and
$1,070 from other income.





Cost of
revenue


The cost
of revenue for the six months ended June 30, 2009 and 2008, was $7,261,555 and
$2,727,602, respectively.  For the three months ended June 30, 2009
and 2008, the cost of revenue was $3,605,400 and $2,645,519,
respectively.





Selling, General and
Administrative Expenses


Selling,
General and Administrative (SG&A) expenses include such items as wages,
commissions, consulting, general office expenses, business promotion expenses
and costs of being a public company, including legal and accounting fees,
insurance, and investor relations.





For the
six months ended June 30, 2009 compared to the same period in 2008, SG&A
expenses increased $2,636,193, with the majority of this increase associated
with the acquisition of CUI and its operations for the full six month
period.


21


Research and
Development


The
research and development costs are related to the technology for which Waytronx
acquired the licensing rights as well as research and development expenses for
CUI products.  Research and development costs were $156,064 and
$524,941, for the six months ended June 30, 2009 and 2008,
respectively.





Impairment
Loss


The
Company recorded a $10,698,169 impairment loss related to goodwill and a
$136,811 impairment loss related to patents during the first six months of
2009.





Bad Debt


The bad
debt expense for the six months ended June 30, 2009 and 2008 was $51,554 and
$91,500, respectively.  The bad debt expense for the six months ended
June 30, 2009, relates to miscellaneous customers.  The bad debt
expense for the six months ended June 30, 2008 relates to a note receivable from
the settlement gain from Mobil Magic.  Mobil Magic remains in default
on the note, and Waytronx has not received a payment on this note since January
of 2008.  The Company has reserved fully for the note and will
continue to pursue collection of the balance of $91,500 but the outcome of the
collections process is uncertain.





Other
Income


Other
income for the six months ended June 30, 2009, consisted of $65,800 for services
billed to a related party, $13,986 for interest income from related parties,
$15,333 for foreign exchange gain, $2,190 in rental income, $1,173 in other
income and a loss on equity investment in affiliate of $72,043.





Convertible debt and
amortization of debt discount and debt offering costs


The
Company recorded an expense of $774,160 and $1,612,931 for the three and six
months ended June 30, 2009, respectively, and $519,528 and $578,495 for the same
periods in 2008, for the amortization of debt discount and debt offering
costs.  The increased expense in 2009 of $$254,632 and $1,034,436 for
the three and six month periods was due to the increase in debt used to fund the
acquisition of CUI, Inc.





Interest
Expense


The
interest expense of $839,725 and $373,982 for the six months ended June 30, 2009
and 2008, respectively, is for interest on the secured convertible notes
payable, bank operating line of credit, and secured and unsecured promissory
notes.  The increase as compared to the prior year period is related
to the notes associated with the acquisition of CUI, Inc. and debt obtained
during 2008 to fund the operations of Waytronx.





Preferred Stock
Dividends


No
preferred dividend expense was recorded by the Company during the six months
ended June 30, 2009 and 2008, as during 2006 all Series A and B Convertible
Preferred shareholders accepted the Company’s offer to receive all outstanding
dividends through March 2006 in either cash or common shares at a per share
price of $0.20.





Extraordinary
Items


During
the six months ended June 30, 2009, Waytronx recognized an extraordinary gain on
the extinguishments of debt of $11,834,055.  This gain is the result
of the amendment of the $17,500,000 convertible seller’s note to $4,900,000
related to the acquisition of CUI, Inc. and the related gain of $11,808,513 as
well as the extinguishment of a $125,000 note payable to a related party that
resulted in a gain of $25,542.





Critical
Accounting Policies





Our
financial statements and related public financial information are based on the
application of accounting principles generally accepted in the United States
(“GAAP”). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenue and expense amounts reported.  These
estimates can also affect supplemental information contained in our external
disclosures including information regarding contingencies, risk and financial
condition. We believe our use if estimates and underlying accounting assumptions
adhere to GAAP and are consistently and conservatively applied. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. Actual results may differ
materially from these estimates under different assumptions or conditions. We
continue to monitor significant estimates made during the preparation of our
financial statements.


22


Our
significant accounting policies are summarized in Note 2 of our financial
statements. While all these significant accounting policies impact its financial
condition and results of operations, we view certain of these policies as
critical. Policies determined to be critical are those policies that have the
most significant impact on our financial statements and require management to
use a greater degree of judgment and estimates. Actual results may differ from
those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would cause effect on our results of operations,
financial position or liquidity for the periods presented in this
report.





Recent
Accounting Pronouncements





In May
2009, the FASB issued SFAS No. 165 “Subsequent Events” (“SFAS 165”). SFAS 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. SFAS 165 sets forth (1) The period after the balance
sheet date during which management of a reporting entity should evaluate events
or transactions that may occur for potential recognition or disclosure in the
financial statements, (2) The circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (3) The disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. SFAS 165 is
effective for interim or annual financial periods ending after June 15, 2009.
The adoption of this statement did not have a material effect on the Company’s
financial statements.





In June
2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 improves
the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets. SFAS 166 is effective as
of the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter. The
Company is evaluating the impact the adoption of SFAS 166 will have on its
financial statements.





In June
2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”
(“SFAS 167”). SFAS 167 improves financial reporting by enterprises involved with
variable interest entities and to address (1) the effects on certain provisions
of FASB Interpretation No. 46 (revised December 2003), “Consolidation of
Variable Interest Entities”, as a result of the elimination of the qualifying
special-purpose entity concept in SFAS 166 and (2) constituent concerns about
the application of certain key provisions of Interpretation 46(R), including
those in which the accounting and disclosures under the Interpretation do not
always provide timely and useful information about an enterprise’s involvement
in a variable interest entity. SFAS 167 is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. The Company is evaluating the
impact the adoption of SFAS 167 will have on its financial
statements.





In
June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162”. The FASB Accounting Standards
Codification (“Codification”) will be the single source of authoritative
nongovernmental U.S. generally accepted accounting principles. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective
for interim and annual periods ending after September 15, 2009. All existing
accounting standards are superseded as described in SFAS 168. All other
accounting literature not included in the Codification is nonauthoritative. The
Company is evaluating the impact the adoption of SFAS 168 will have on its
financial statements.


23


Off-Balance
Sheet Arrangements




None.





Item
3.  Quantitative and Qualitative Disclosure about Market
Risk





A smaller
reporting company, as defined by Rule 229.10(f)(1), is not required to provide
the information required by this Item.





Item
4T.  Controls and Procedures





Within 90
days prior to the filing of this report, the Company carried out an evaluation,
under the supervision and with the participation of its management, including
the Chief Executive Officer and Chief Financial Officer, of the design and
operation of its disclosure controls and procedures.  Based on this
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures are effective
for the gathering, analyzing and disclosing the information the Company is
required to disclose in the reports it files under the Securities Exchange Act
of 1934, within the time periods specified in the SEC’s rules and
forms.  There have been no significant changes in the Company’s
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of this evaluation.





(a) Our
management, including the principal executive officer and principal financial
officer, do not expect that our disclosure controls and procedures will prevent
all error and fraud.  A control system, no matter how well conceived
and operated, can only provide reasonable, not absolute, assurance that the
objectives of the control system are met.  Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their
costs.  Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our Company have been
detected.  These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake.  Additionally, controls can be
circumvented by the individual acts of some persons, collusion of two or more
people, or by management override of the control.  The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions.




(b)  Changes
in internal controls over financial reporting.





We have
not identified any significant deficiency or material weaknesses in our internal
controls, and therefore there were no corrective actions taken.








PART
II – OTHER INFORMATION





Item
1.  Legal Proceedings.





None.





Item
1A:  Risk Factors.





A smaller
reporting company is not required to provide the information required by this
Item.


24


Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.





The
Company relied on Section 4(2) of the Securities Act of 1933 as the basis for an
exemption from registration for the following issuances.





Common
Stock Issued





During
the six months ended June 30, 2009, the Company issued the following common
stock:





490,000
shares of common stock were issued in relation to the exercise of warrants with
proceeds of $4,900.





The
Company issued 266,990 shares of common stock to an employee in accordance with
his employment agreement.  These shares were valued at $25,000 using a
thirty-day average price at December 31, 2008, in accordance with the
agreement.





Common
Stock Issuable





During
the six months ended June 30, 2009, the Company recorded common stock issuable
as follows:





500,000
shares of common stock are issuable for services performed by
consultants.  $95,000 of consulting expense was recorded in relation
to this transaction based on the fair market value of the stock on the date of
grant.





Stock
Options Granted




During
the six months ended June 30, 2009, the Company granted the following stock
options:




The
Company granted 365,000 stock options to employees under the 2008 Equity
Incentive Plan with an exercise price of $0.19 per share.  These
shares were valued at $35,942.




Waytronx
granted 2,550,273 stock options to employees and officers under the 2009 Equity
Incentive Plan (Executive) with an exercise price of $0.25 per
share.  These shares were valued at $77,508.




1,458,000
un-vested stock options were granted to directors under the 2009 Equity
Incentive Plan (Executive with an exercise price of $0.25 per
share.  These stock options were valued at $44,310.





Item
3.  Defaults upon Senior Securities.





None.





Item
4.  Submission of Matters to a Vote of Security Holders.





None.





Item
5.  Other Information.





Nominating
Committee





The
nominating committee consists of all of the members of the Board of Directors
who are "independent directors" within the meaning of Rule 4200(a)(15) of the
Nasdaq Stock Market.  The nominating committee is responsible for the
evaluation of nominees for election as director, the nomination of director
candidates for election by the shareholders and evaluation of sitting
directors.  The Board has not developed a formal policy for the
identification or evaluation of nominees.  In general, when the Board
determines that expansion of the Board or replacement of a director is necessary
or appropriate, the nominating committee will review, through candidate
interviews with members of the Board and management, consultation with the
candidate's associates and through other means, a candidate's honesty,
integrity, reputation in and commitment to the community, judgment, personality
and thinking style, willingness to invest in the Company, residence, willingness
to devote the necessary time, potential conflicts of interest, independence,
understanding of financial statements and issues, and the willingness and
ability to engage in meaningful and constructive discussion regarding Company
issues.  The committee would review any special expertise, for
example, that qualifies a person as an audit committee financial expert,
membership or influence in a particular geographic or business target market, or
other relevant business experience.  To date the Company has not paid
any fee to any third party to identify or evaluate, or to assist it in
identifying or evaluating, potential director candidates.


25


The
nominating committee will consider director candidates nominated by shareholders
during such times as the Company is actively considering obtaining new
directors.  Candidates recommended by shareholders will be evaluated
based on the same criteria described above.  Shareholders desiring to
suggest a candidate for consideration should send a letter to the Company's
Secretary and include: (a) a statement that the writer is a shareholder
(providing evidence if the person's shares are held in street name) and is
proposing a candidate for consideration; (b) the name and contact information
for the candidate; (c) a statement of the candidate's business and educational
experience; (d) information regarding the candidate's qualifications to be
director, including but not limited to an evaluation of the factors discussed
above which the Board would consider in evaluating a candidate; (e) information
regarding any relationship or understanding between the proposing shareholder
and the candidate; (f) information regarding potential conflicts of interest;
and (g) a statement that the candidate is willing to be considered and willing
to serve as director if nominated and elected.  Because of the small
size of the Company and the limited need to seek additional directors, there is
no assurance that all shareholder proposed candidates will be fully considered,
that all candidates will be considered equally, or that the proponent of any
candidate or the proposed candidate will be contacted by the Company or the
Board, and no undertaking to do so is implied by the willingness to consider
candidates proposed by shareholders.





Item
6.  Exhibits and Reports on Form 8-K





The
following exhibits are included as part of this Form 10-Q.





Exhibit No.
              
              Description3.11
              
              Amended
      Articles of Incorporation3.21
              
              Bylaws
      of the Registrant.3.32
              
              Articles
      of Amendment to Certificate of Incorporation - Certificate of
      Designations, Preferences, Limitations and Relative Rights of the Series A
      Preferred Stock, filed July 25, 2002.3.42
              
              Articles
      of Amendment to Articles of Incorporation-Terms of Series A Convertible
      Preferred Stock, filed November 13, 2003.3.52
              
              Restated
      Articles of Incorporation to increase the authorized common stock to
      150,000,000 shares, filed December 23, 2003.3.62
              
              Restated
      Articles of Incorporation - Certificate of Designations of the Series B
      Convertible Preferred Stock, filed April 1, 2004.3.73
              
              Restated
      Articles of Incorporation, Officers’ Certificate and Colorado Secretary of
      State Certificate filed June 30, 2004 showing corporate name change to
      OnScreen Technologies, Inc.3.84
              
              Restated
      Articles of Incorporation and Colorado Secretary of State Certificate
      filed January 7, 2008 showing corporate name change to Waytronx,
      Inc.3.98
              
              Restated
      Articles of incorporation to increase the authorized common shares to
      325,000,000 shares.10.22
              
              Contract
      and License Agreement between the Registrant and John Popovich, dated July
      23, 2001.10.32
              
              Agreement
      by and among the Registrant, John Popovich and Fusion Three, LLC, dated
      January 14, 2004.10.42
              
              Letter
      Agreement between the Registrant and John Popovich, dated January 15,
      2004.10.52
              
              Master
      Settlement and Release Agreement by and among the Registrant, Fusion
      Three, LLC, Ryan Family Partners, LLC, and Capital Management Group, Inc.,
      dated February 3, 2004.10.62
              
              First
      Amendment to Contract and License Agreement, dated February 3,
      2004.10.175
              
              Assignment,
      dated February 16, 2005, of Registrant’s technology patents ownership from
      inventor to CH Capital.


26





10.185
              
              Assignment,
      dated February 16, 2005, of Registrant’s technology patents ownership from
      CH Capital to Company.10.225
              
              Promissory
      Note dated March 25, 2005 evidencing $1,500,000 unsecured short term loan
      to Registrant.10.236
              
              OnScreen
      Technologies, Inc. 2005 Equity Incentive Plan10.257
              
              Employment
      Agreement between the Registrant and William J. Clough, Esq. dated
      November 21, 2005.10.289
              
              Waytronx,
      Inc. 2008 Equity Incentive Plan.14.16
              
              Registrant’s
      Code of Ethics for Principal Executive and Financial Officers and Code of
      Ethics and Business Conduct Statement of General
Policy.15.210
              
              Letter
      re unaudited interim financial information.22.5
              
              Proxy
      Statement and Notice of 2009 Annual Shareholder Meeting (Preliminary)
      filed with the Commission on July 28, 2009.31.110
              
              Certification
      of Chief Executive Officer pursuant to Exchange Act Rules 13a-15(e) and
      15d-15(e), as adopted pursuant to Section 203 of the Sarbanes-Oxley Act of
      2002.31.210
              
              Certification
      of Chief Financial Officer pursuant to Exchange Act Rules 13a-15(e) and
      15d-15(e), as adopted pursuant to Section 203 of the Sarbanes-Oxley Act of
      2002.32.110
              
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.210
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.





Footnotes
to Exhibits:





1
              Incorporated
      by reference to our Registration Statement on Form SB-2/A filed with the
      Commission on October 26, 2001.2
              Incorporated
      by reference to our Report on Form 10-KSB filed with the Commission on
      April 14, 2004.3
              Incorporated
      by reference to our Report on Form 10-KSB filed with the Commission on
      March 31, 2005.4
              Incorporated
      by reference to our Registration Statement on Form S-8 filed with the
      Commission on March 12, 2008.5
              Incorporated
      by reference to our Report on Form 10-KSB filed with the Commission on May
      4, 2005.6
              Incorporated
      by reference to our Proxy Statement pursuant to Section 14(a) filed with
      the Commission on October 7, 2005.7
              Incorporated
      by reference to our Report on Form 10-KSB filed with the Commission on
      February 24, 2006.8
              Incorporated
      by reference to the Proxy Statement and Notice of 2008 Annual Shareholder
      Meeting filed with the Commission July 3, 2008.9
              Incorporated
      by reference to our Registration Statement on Form S-8 filed March 12,
      200810
              Filed
      herewith.





Reports
on Form 8-K.





The
following documents that we filed with the SEC during the second quarter of 2009
are incorporated herein by reference:





(a)
            A
      report on Form 8-K filed May 1, 2009 announcing and summarizing an
      amendment to a Convertible Promissory Note by reducing the conversion rate
      from $0.25 to $0.07 per share.


(b)
            8-KA
      designating and describing CUI, Inc. as a wholly owned subsidiary of the
      Registrant filed with the Commission May 21,
  2008.


(c)
            A
      report on Form 8-K filed July 6, 2009 announcing acquisition of Comex
      Instruments Ltd. and 49% of Comex Electronics
  Ltd.




27


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





Signed
and submitted this 6th day of August 2009.





Waytronx,
      Inc.By:
                  /s/
      William J. CloughWilliam
      J. Clough,Chief
      Executive Officer/Presidentby:
                  /s/
      Daniel N. FordDaniel
      N. Ford,Chief
      Financial
Officer


28